Tom Lesch respects his competition in the debt advisory space. By and large, they are all after the same thing: help clients build an optimal financing structure that enables them to execute their growth strategies.
“The secret sauce of what makes someone better is do they understand your business,” says Lesch, a partner and head of the U.S. debt advisory practice at Livingstone Partners.
“Are they thinking about my capital needs appropriately or are they just regurgitating what the request is? Are they adding some thought to alternative credit structures to consider? Do they have the deal flow? Are they active enough in the current market so that they are aware of the latest and greatest structures and pricing that the market will offer?”
When Lesch arrived at Livingstone in 2011, he was excited about the opportunity to help clients across a wide variety of industries and make a difference in their growth efforts.
“Most of the people we work with, there is typically some sort of issue why they want our help,” Lesch says. “If their existing lender did what they wanted them to do, there would be no need to pay us.”
Smart Business Dealmakers spoke with Lesch about his approach helping companies get the capital they need, as well as a recent trend that has seen borrowers become less willing to take risks.
Make your case
The process of building a capital structure begins with understanding the mindset of the lender.
“You have to understand what these lenders are going to need to get this deal approved,” Lesch says. “You have to anticipate that. You have to react to their request and you have to then put forth solid arguments so that they can see why this is a worthwhile deal to invest in. The more naive way of doing this is taking a deal, taking a sell side that is very rosy and doesn't address any of the issues the company may be having. It gets too rosy, it gets blasted out and you wait for the term sheet to roll in. That's where you often run into failure.”
Livingstone typically works with clients that have issues with customer concentration, choppy earnings history or significant capital expenditures, among other issues.
“It runs the gamut of things that usually turn credit off or increase the credit risk,” Lesch says. “That's generally what our clients look like. There's some sort of complexity to the deal. It's usually that they need help to access the right kind of capital. What structure works best? What lenders should they approach?”
Play to your strengths
In December 2017, Lesch structured a growth financing deal for Auburn Hills, Michigan-based Android Industries, a global complex assembler of automotive components.
“They had just won a major contract with General Motors on a large SUV pickup truck platform,” Lesch says. “So they had to spend a fair amount of CapEx to build the equipment and build out the factories to take on this assignment and had to be within a very close radius of the General Motors final assembly plants. They had a supportive bank, but it couldn't support all that was going on there.”
Livingstone had done transactions in the automotive sector and had knowledge about pertinent pricing components.
“We eventually assembled a seven-bank club to pull off the transaction,” Lesch says. “It was a couple hundred million dollar financing. We got it done at far cheaper rates than anyone was anticipating, including the incumbent banks. We helped the client think about their business globally as opposed to financing it separately, which is what they traditionally had done. We really had to play up the global strength of the business to achieve the outcome we got.”
Borrowers are more cautious
With very competitive credit markets and a ton of capital chasing deals, one of the trends Lesch has seen with borrowers is a reluctance to take too much risk.
“We think the borrowers are simplifying their credit structures and you can see that in some of the stats that are published,” Lesch says. “Borrowers are no longer trying to push leverage to the limit and over complicate their structures. They are going for ease of use and in some cases, even foregoing some leverage. I think they are realizing if you get too aggressive with your credit structure, you can run yourself into trouble.”